Economic recovery will be “riddled with risks:” report

by Donald Horne06 Oct 2015

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Economic recovery will be “riddled with risks:” report

“While we remain hopeful for a marginal recovery, we are mindful of the headwinds as well as the risks of continued stagnation of the domestic economy,” says Shailesh Kshatriya, director of Canadian strategies at Russell Investments Canada Limited.

“What curbs our enthusiasm is that business investment remains elusive on two fronts: capital investment in the energy sector, which has been stunted by low oil prices, and in the manufacturing sector, which has not yet had enough time with a weak loonie to bring manufacturing capacity back online.”

Kshatriya, who authored the Canada Market Perspective section of Russell’s Q4 strategists’ outlook, also believes that while investor attention may be fixated on oil and the energy sector, it is the housing market that continues to pose “the greatest long-term threat to the domestic economy.”

On a positive note, the report highlights that employment growth nationwide is low but positive on a six-month trend basis and household spending has held up, as the depreciating Canadian dollar relative to the U.S. dollar may reduce the incentive for Canadian consumers to cross-border shop.

The report also indicates that if the domestic economy continues to deteriorate, the Bank of Canada will not stand idle. Keeping rates steady for the remainder of this year allows the BoC to have capacity to react next year, concludes Kshatriya.